Published in the Greater Concord Chamber of Commerce Newsletter (October 2019)
Most states, with the notable exception of California, have long enforced noncompetition agreements. However, in recent years, there have been increasing calls for noncompete reform.
The New England states have taken a leading role in this area, with several new laws and proposals. The following is a summary of the key provisions of this legislation.
Beginning in September, New Hampshire will prohibit noncompetition agreements for employees who earn an hourly rate less than or equal to 200% of the federal minimum wage.
This new restriction is in addition to an existing law requiring employers to provide advance notice if a noncompetition agreement is a condition of employment.
Last year, Massachusetts enacted sweeping legislation affecting noncompetition agreements. The law prohibits enforcement of noncompetition agreements against non-exempt employees, employees under the age of eighteen, student interns, and employees laid off or terminated “without cause.” The law limits noncompetition agreements to twelve months, requires reasonable geographic restrictions, and imposes strict notice requirements.
The Massachusetts law is the first to require that employees be provided with “garden leave” pay equal to at least 50% of their pre-termination salary, or “other mutually-agreed upon consideration.”
Maine’s new law states that noncompetition agreements are “contrary to public policy,” and will only be enforceable to the extent that they are reasonable and are no broader than necessary to protect an employer’s trade secrets, confidential information, or goodwill. The law prohibits noncompetition agreements with employees earning wages at or below 400% of the federal poverty level.
The law permits noncompetition agreements for higher wage earners, but with some restrictions. First, employers must disclose, prior to making an offer of employment, that a prospective employee will be required to sign a noncompetition agreement as a condition of employment. Further, noncompetition agreements will not become effective until one year after the start of employment or six months from the date the agreement was signed, whichever is later.
The statute goes into effect on September 18, 2019, and applies to noncompetition agreements entered into or renewed after that date.
The Rhode Island Noncompetition Agreement Act, which goes into effect in January 2020, prevents employers from enforcing noncompetition agreements against nonexempt employees, student interns, employees under the age of eighteen, and “low-wage employees,” which the statute defines as employees earning less than 250% of the federal poverty level.
The law does not prevent employers from entering into non-solicitation agreements, nondisclosure and confidentiality agreements, or agreements preventing disclosure of trade secrets. The law also includes exceptions for noncompetition agreements entered into in connection with the sale of a business or separation from employment.
The very first bill introduced in the current session of the Vermont legislature was a measure to sharply restrict noncompetition agreements. If passed, the bill, which is modeled on California’s statute, would outlaw most noncompetition agreements. The bill seeks to prohibit “agreement[s] not to compete or any other agreement that restrains an individual from engaging in a lawful profession, trade, or business.” The bill makes exceptions for noncompetition agreements entered into in connection with the sale of a business, dissolution of a partnership, or termination of an interest in an LLC. The bill also exempts agreements preventing the disclosure of trade secrets. The bill has been referred to the Vermont House Committee on Commerce and Economic Development. But, as of this writing, no further action has been taken.
These recent changes to noncompete law in New England are part of a larger nationwide trend toward more restriction on the use of noncompetition agreements. Employers, especially those with multi-state workforces, should keep a watchful eye on these developments, and confer with employment counsel to ensure compliance with applicable laws.
Adam Hamel is a Director in the Employment Practice Group of McLane Middleton, Professional Association. Adam can be reached at (781) 904-2710 or [email protected].